INVESTMENT HIGHLIGHTS

• 9MFY18 CNI within expectations, announced income distribution reinvestment plan

• CNI for the first nine months jumped 17%yoy as revenue climbed 15%yoy

• 3QFY18 CNI increased by 31%yoy and 11%qoq to RM29.7m

• Maintain NEUTRAL with an unchanged TP of RM1.55

9MFY18 CNI within expectations, announced income distribution reinvestment plan. Axis REIT’s cumulative CNI of RM80.7m came in within ours and streets’ expectations, making up 72% and 77% of the full year estimates respectively. An interim DPU of 2.35 sen was announced, bringing year-to-date gross DPU to 6.3 sen, which is also within estimates. The REIT manager has also announced an income distribution reinvestment plan (IDRP) that is applicable for the latest dividend announcement. Of the 2.35 sen per unit announced, the gross electable 1.10 sen can be opted for reinvestment in new units while the remaining 1.25 sen will be paid in cash. The new units are fixed at RM1.39 each, which is about 7.1% discount to the 5-day VWAMP of RM1.4969.

CNI for the first nine months jumped 17%yoy as revenue climbed 15%yoy to RM144.9m mainly due to the addition of five new properties that boosted rental income. On top of that, rental reversion was 6% while occupancy rate recorded 94.8% compared to 94% as at end-June. Among the new contributors compared to last year include Nestle@Axis Mega Distribution Centre and Wasco Facility@Kuantan.

3QFY18 CNI increased by 31%yoy and 11%qoq to RM29.7m

mainly due to the gross revenue that jumped by 25%yoy to RM52.4m. CNI for the quarter climbed more than the revenue mainly due to lower expenses and higher realised property income, which can be attributed to the lease of Nestle@Axis Mega Distribution, the Beyonic i-Park factories at Indahpura, Johhor and Axis Shah Alam DC4.

Portfolio expansion to drive growth further. The purchase of Senawang factory in Negeri Sembilan for RM18.5m is slated for completion by year end. Axis is also evaluating potential acquisition targets worth a combined value of RM160m. Furthermore, the REIT manager continues to improve occupancy rate. Among others, occupancy rate for Axis Business Campus is expected to improve to 69% in the next quarter from 63% as of end-September.

Rental from Axis Aerotech Centre to commence in December. The Axis Aerotech Centre project at Subang which was signed with Upeca Aerotech is on-going. The development of the single-storey manufacturing plant cum office building with a gross built-up area of about 178,978.60 sq ft has commenced construction work in April this year and has incurred costs of RM20.4m as of end-September. During the construction period, Upeca has requested for changes in the technical specifications of the project which lead to the deferment of handover date to March 31, 2019 instead of December 15 this year. That said, rental of the property shall start from December 16. Contribution of this project to FY18 NPI is negligible as it only accounts for half a month.

Maintain NEUTRAL with an unchanged TP of RM1.55 as we make no changes to our full year estimates while we keep our valuation method, which is based on the Dividend Discount Model (Required rate of return: 7.5%, Perpetual growth rate: 1.0%). Dividend yield for Axis is estimated at 5.3%. We are neutral on the Axis at this point as we expect higher borrowing cost and expenses to offset the higher income from new assets.

Source: MIDF Research - 23 Oct 2018